Shall we say that recently Euro appreciation is one of the result of positive contagion? If yes, and if the "positive contagion" is a farmful phenomenon, as financial analysts say, what we can predict is the continuing deppreciation of Euro.

Whether or not the financial crisis is over, depends on how each one defines it.

When countries in the Euro-zone are highly indebted (even France will sooner or later enter the domino effect - Frau Merkel has already publicly stated publicly, that she "worries about the economic condition of France"), the U.S. has an describable deficit (it cant print forever), UK stating a break-up and global demand shrinks... then a currency war will start ( a good analysis of the subject I read: http://viliardos.com/2013/01/22/the-looming-storm/ ).

As for the stock market optimism: Since banks that are recapitalized, are not lending money to businesses due to the crisis, they instead are investing the money in the stock markets (either directly or via large funds).

Most probably, the people that engaged in the Davos summit, have something to benefit from the statements: "The crisis is over". They need to stop treating us like fools

@ Milovan (in response to your earlier comment further below):
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Tell me, how can I take a response seriously that talks about issues completely unrelated to my initial statement?
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Take just the first three stanzas of your response:
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# 1: "Apparently, you confuse us with France. There is no 35-hour work week in Italy."
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- I didn't mention 35-hour weeks or the like.
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# 2: "The rate of trade union membership is below 30% - of full-time contracts - in hard numbers, less than 6 million people."
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- I didn't mention trade union membership.
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# 3: "Unlike Germans workers, who generally leave at 5.00 or 5.30 on the dot, Italians leave only when problems are resolved and frequently stay long after official hours."
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- I didn't mention when employees show up and leave (besides, my experience with German employees is different, certainly in the service sector - but they do tend to be on time, yes LOL).
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I could go on.
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The fact of the matter is: Italy's labor participation rate is one of the lowest among OECD countries. Too few Italians work! It doesn't matter how much those Italians work who actually have a job - it matters that more Italians get a job. And your famously rigid labor laws keep too many people shut out.

@ Milovan:
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You are a leftist, I'm a centrist - and that implies of course certain ideological differences.
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What you cannot make go away is the indeed famously low labor participation rate and the fact that Italy is ranked rock bottom among OECD members in terms of labor market flexibility.
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You may of course propose how to increase labor participation rate by INCREASING labor market rigidities, but be warned that the European left has been chasing that chimera for 4 decades, to no avail.

My reply to butter or Buiter or whatever is real name is would be that

a) c itigroup made a very sad choice in betting against the euro because of him
b) his own country is n a terrible shape, and I wouldn't be surprised if they seek assistance in the near future. holland has one of the highest debts per GDP in the entire world, and her economy is purely based on being a harbour to German exports/imports.

Repeating nonsense ad nauseam doesn't make it more true.
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THE NETHERLANDS ("Holland") are playing in a league with e.g. SWITZERLAND.
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PORTUGAL has been competing for jobs and investment with the new EU entrants from CENTRAL AND EASTERN EUROPE for the past two decades - and LOST big time. That's why it is now in such dire straits.
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Instead of resenting Dutch success, try to emulate it.

The Parable of the Euro (Dijsselbloem 13:1-23) under new management!
“Behold, a sower went out to sow and as he sowed, some seed fell by the wayside; and the birds came and devoured them. Some fell on stony places, where they did not have much earth; they immediately sprang up because they had no depth of earth. But when the sun was up they were scorched, and because they had no root they withered away. And some fell among thorns, and the thorns sprang up and choked them”

I think celebration may be a bit premature. After all, as the article pointed out, the economic situation in some parts of Europe remains grim. I would be interested to read a paper or article that thoroughly breaks down the economic weaknesses of each European country. Such a paper might come in handy for Europe's leaders as well. We need to thoroughly evaluate what went wrong before we can attempt to find a long-term solution.

If you are interested in each EU country's strenghts and weaknesses you might want to consider taking a look on OECD's website or google the various reports of rating agencies.
As to what evaluation is concerned, macro-economic figures speak for themselves as well as the current situation. I think it's time to take action and split the EU in two: the North and the South and give both space to live by their own policies.

If you are interested in each EU country's strenghts and weaknesses you might want to consider taking a look on OECD's website or google the various reports of rating agencies.
As to what evaluation is concerned, macro-economic figures speak for themselves as well as the current situation. I think it's time to take action and split the EU in two: the North and the South and give both space to live by their own policies.

The problem with all of this is that in Southern Europe the bond market is being inflated by the use of public sector pensions...Spain having placed all of its public pensions to show a false balance and extreme austerity.

Since the problem with the deficit was with massive bank fraud and damages from that fraud and since no meaningful penalties to bring back trillions of dollars from the banks to government and public pocketbooks has happened, we will be needing to see a pendulum shift in private money coming back to the public.

The second problem is that the governments are paying banks to sell bonds. Why would a government who has been defrauded of billions by banks be paying banks? This is the problem of suspending democracy and having Rule of Law set aside. It will take decades to get all of that money to the rightful owners!

There are no "public sector pensions" being used in Italy to purchase our bonds.
In general, Italian banks and insurance companies have increased their holdings since 2011. Private individuals have also increased their (patriotic) investments.
Italian aggregate private savings are said to be around €8.6 trillion euros - more than 5.5X our gdp. Some 65% of our public debt is held domestically.

Please be advised that "Southern Europe" has very little economic unity. Our respective economies have different challenges, as much so as among northern European countries.

@Sanoran: "Governments don't invest money, they consume money". This is not correct.

Governments also exist to invest in the country, for example in schools and roads, etc. which is not done by private enterprise. These investments are not made by private enterprise because the user-customers insist that the rich pay the bills. When the country isn’t growing and the tax base is low, this government investment has to be financed with borrowing.

Two big mistakes are regularly made 1) not to pay back the loans when tax income increases and 2) borrowing to finance current expenditures like social security and defence. With these two mistakes, anybody can see that the amount of outstanding borrowings and the accompanying interest charges will at some point become unsustainable. Anybody can see it who looks. The problem is nobody looks. There are no long term national financial policies, they are all short term. The EU talks about it, but the EU doesn’t do it.

The fundamental problem is that government finances are determined by democratic wishful thinking. That is, the majority of the voting public wants the prosperous minority to pay for all types of government expenditures. The system of one vote per person makes this result inevitable in most countries. This is what democracy does. The system may be tempered by tax dodging, corruption and overpayments at high levels, which serve to maintain the after tax income of the higher earning.

The policy of growth at all costs would keep the debt problem in check, so long as it works. As soon as the growth is gone, the Ponzi scheme of issuing paper will collapse.

There was a time when I thought that the European growth machine would support my life style until I’m gone. I am gradually getting more nervous and I am hoping for a heart attack at the latest before I’m 100 in 2045. By then the value of my pension will probably have sunk to nothing.

In the meantime, I am participating in the government led Ponzi scheme, which means borrowing at subsidized interest rates and investing in equities. Government bonds are too risky relative to the net return after expenses and taxes. If inflation starts to increase before the promised growth does, and governments do not honour their promise to stop inflation, there will be a mad rush out of bonds. This is my assumption.

Banks love credit card customers who always carry a balance and pay huge interests. Governments were pretty much the same way. How can a government pay interest? Governments don't invest money, they consume money. The only way a government can pay interest is by taxing its people. This is called Usury (Shylock the Jew, of Shakespeare practiced it). There is a reason why Interest was banned in Islam... unless you can borrow money and make it grow, you are forever stuck in debt.

The Financial Crisis was really scary for Bankers and the Economist, which is a pimp for the Bankers. There was a chance that the lucrative business of Usury might come to an end.

But, guess what, the drug-addict is alive and continuing to be an addict. So the drug-dealers, or Banks, are celebrating. The Economist is also celebrating, exposing their true allegiance.

I do not mean to insult our Spanish brothers and sisters - who have made good progress, are far more export-competitive than they are given credit for, and generally have good leadership.
But, it is wrong to lump Italy and Spain together as vulnerable countries (even if Italian yields have been reliably 80 basis points below Spanish yields, following the trends very closely).

1) Italy has not got the vulnerable (real estate) banking sector Spain has. Aside from some relatively minor undercapitalisation at Monte dei Paschi di Siena (not at all threatened by bad lending practises or bankruptcy) there have been no bank bailouts in Italy, nor are any expected. Private savings and LTRO money (still floating around the banking system) in the peninsula have generally covered the problems deriving from the limited capital flight. I should explain that bank deposits dropped by just under €100 billion in the last 18 months or so. That blow has been absorbed - and was the major factor behind our recession last year, but not bank failures.

2) With much longer average maturities than Spain, we have been more able to finance our own debt roll-overs: We are at about 65% domestic holdings of our debt, making us less vulnerable to speculation.

3) Italy now has a 12-month trade surplus at €11 billion and growing. Spain still has a €46 billion trade deficit - and this despite the fact that the Iberian country manufactures and exports almost three times the amount of automobiles Italy does, thanks to FDI. (Italy is the only G8 country without a single, foreign-owned auto factory).

5) The Italian Court of Accounts keeps our country's 20 Regions on a tight leash, and none of them are so indebted like Spanish Regions.

6) The phantomatic separatist movement in Italy, the "Northern League" is seeing the collapse of its support, to about 5% at a national level. They will be lucky to get 5% of the seats in parliament, given the electoral law. So there is not a relevant analogy between Catalonia and Lombardy at the moment - while Lombardy's budget is hardly out of control and the Region is not at all bankrupt or in need or rescue.

7) Never underestimate the power of Vatican finances in the peninsula - which constitutes a sort of stabilising factor here. As Ratzinger said four years ago, "this crisis demonstrates that Faith is the only sure currency".

8) Italian exports are more geographically diverse than Spain's: Asia now counts for a large portion of our peninsula's exports, as does Central Europe. Not so in the Spanish case.

9) Italy still has some choice corporations to privatise; the State still holds 30% shares in ENI, the world's fifth largest oil company, and ENEL-Endesa, one of the largest electricity companies in the world, among others.

10) Although Italy's overall debt has long been much higher than Spain's, oscillating between 103% and 126% for twenty years, (our debt is at the national level, theirs is at the Regional level) international investors know Italian bonds well - ours is one of the most liquid sovereign markets in the world and we have traditionally attracted many big investors from both Asia and North America.
And, not least, our debt is no higher than it was in the mid-90's. We have already demonstrated, for many years, our ability to pay interest expense at these debt levels. Not so, some other large and medium-sized economies, who are heading over the 100% debt-to-gdp mark as a first-ever in peacetime.

@ Milovan:
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Nice job distancing yourself from SPAIN, which is indeed stil deeper in the doo-doo than ITALY. "In the country of the blind the one-eyed man is king", as they say.
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I only wonder why you get so furious when people make the same sort of comparison between ITALY and significantly better-performing countries such as FRANCE or GERMANY.
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As the spread on sovereign bonds indicate, ITALY has a lot more in common with SPAIN than with either FRANCE or GERMANY.

I think all these comments back up my earlier one describing why this reader's word counts for nothing,Just this time instead of the superciliousness being directed to us "northerners"(never felt as a Londoner I am in the north) it is to the Spanish,among whom I live,and who too are deep in "Kaka".And yet the markets,for good or bad,trustworthy or not feel that Spain and Italy ARE in the same bag.Spain is corrupt,unreformed and schleroticly slow and unmodernised and Italy is not? Or maybe in different ways?

Your attempts to lay some distance between Italy and Spain are getting desperate.
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Unlike Italy, Spain (which is undoubtedly in a very tough spot) has begun to tackle real reform. Italy has virtually done nothing, except ask the ECB to assure liquidity. Which it has.
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Spain's productivity has improved over the past 2 yrs - Italy's has not.

...actually the distancing is correct, but the other way around: Italy has way biggest problems than Spain":
-unsustainable public debt
-huge chunk of black economy which their own politicians openly aknowledge
-historical low productivity, while Spain did show to be able to perform in the past.
...as to the comparison with Germany, I hope you are smiling while thinking of it.

Read your own comment-you yourself lamented your word counts for nothing,despite containing interesting points you coated it in superciliousness as per my replies.For that reason my opinion is backed up by fact.The attack is and was justified. As for differences between Italy and Spain,I wasn't actually commenting ON them but criticising your attitude to Spain and its implied inferiority,and like them or loathe them it is the market's opinion that both are in the periphery for very similar reasons.-

"apparently my word counts for nothing"....apparently nothing,as said the Brand New Heavies. If you stuck to the interesting points and debating then your word would count

Not sure what you mean and I am pretty certain you may not know what you are talking about, when you talk about Italy similarities.
Italy is the the most diversified, 2nd largest manufacturing economy in Europe, second only to heavy subsidized Germany, before your beloved France or UK.
The only main economic difference is the public debt versus GDP, which by all means is a major difference.
The Italian economy is one of the few world economy with a surplus, before interest spent.
After the reform has a more sustainable public pension plan.
Similar economies in terms of little diversification are UK and Spain.
Italy manufacturing economy is definetly more similar and somewhat better than Germany and France.

good post anyway! after the UK, Italy is number 8 measured by nominal GDP in the world - Spain ranks 13. but if it comes to the purchasing power italy ranks 32 only one place before spain..comparing the two countries position at the competitive index neither Italy nor Spain are ranking in the top 30ties...

As you have told us, you were transferred by your bank, unwillingly, to work in Milan. You had a terrible time working in Milan (unsurprising, given your anti-Italian prejudices) and you returned hating Italy more than ever.
You are entitled to your own opinion, but not to posting your defamation of our country without any support for your views.

Italy's underground economy is estimated at around 19-20%. Not any higher than Spain's really.

And Germany's underground economy is estimated by German sources to be around 14%. Lower than Italy and Spain, to be sure, but hardly non-existent.

2) We have sustained our public debt at levels oscillating between 103%-126% for 20 years - exactly the opposite of your adjective "unsustainable" which is easy for you to write but impossible for you to prove, in the face of the historical record.

3) Total public debt in Spain is no lower than in Italy - theirs is at the Regional/Community level, ours is at the national level. The poorest and most problem-ridden Italian region for example - Sicily - has debts of about €15 billion, being less than 20% of regional gdp.

4) Historical low productivity? Don't be ridiculous. Italian manufacturing productivity is among the highest in the world and no lower than Germany's (check the stats for yourself).
Italy has trade surpluses with every one of its G7 partners - including Japan and Canada - save Germany. And in 2013 we expect a trade surplus with Germany also.
How is that possible with an uncompetitive economy?

The Dutch economy shows trade surpluses only because of transshipments at Dutch ports.

And total Dutch debt, both public and private, is higher than in Italy.

"Spain's productivity has improved over the past 2 yrs - Italy's has not."
Spain's unemployment rate is at 26%; Italy's is at 11%. We could improve "productivity" tomorrow, but we prefer not to have unemployment at double the current rate.
For example (and aside from the public sector) Sergio Marchionne complains that he produces equal numbers of cars in Poland with only 6000 workers, while he has 25,000 workers in Italy. (Most of FIAT's best-selling, small cars have been made in Poland over the past decade). But - a) he has assigned lousy-selling (larger) cars to his Italian factories, and b) nothing is stopping him from firing 50-75% of his Italian workers. Obviously, and publicly, he is committed to not reducing Italian auto production capacity below its current 4 factories.
As to the "sustainability" of this low-unemployment strategy:
The Spanish deficit was at 7% for 2012, while Italy's at 3%.
For 2013, the Spanish deficit is estimated at 6% by the EU. Italy's deficit is estimated at 1.6%-2.0%.

@ Milovan:
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Yes, productivity is a quantative measure (work hours per unit of output).
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But the solution to the riddle of stalling Italian productivity is not to distribute the shrinking output among more people, thus making every work hour even more expensive (and thus decreasing demand for it), but to eliminate labor market rigities that keep people from taking ADDITIONAL up work.
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With a pop. of 61 million, Italy has 23 million people in employment.
With a pop. of 82 million, Germany has 42 million people in employment.
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To reach a similar labor participation rate as Germany, Italy would have to create an additional 8 million jobs. These jobs aren't falling from the skies, but will be created once the right conditions are in place.
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In short: Allow Italians to work more, not less!

First of all, thank you for a semi-serious post - at least you are trying to say something that is not at insult.

Secondly, your knowledge of things Italian is woefully inadequate. Apparently, you confuse us with France. There is no 35-hour work week in Italy. The rate of trade union membership is below 30% - of full-time contracts - in hard numbers, less than 6 million people.
Unlike Germans workers, who generally leave at 5.00 or 5.30 on the dot, Italians leave only when problems are resolved and frequently stay long after official hours.
An exception must be mentioned that regards bank workers - the most coddled and over-paid category in Italy. Having said that, none of our banks have required bailouts, so maybe strict regulation of banks is a good thing.
But in general, you really underestimate the flexibility of the Italian employment system. Italians - let me admit to you openly, because we have many defects but we are not hypocrites - follow the law as long as they can afford to; and when they can no longer AFFORD to follow the law, union rules, labour laws, workplace regulations, etc. go right out the door.
Our labour laws look strict on paper, because they represent an aspiration, an attempt to impose strict rules on an otherwise chaotic system, the "Far West" as we say here. Asking an Italian (especially a Leftist) to ease up rules, does not always sound like economic liberalisation or job creation - it sounds to Italian ears like giving up on any attempt to enforce the law on capitalists/owners/industrialists - whatever you want to call them.

Laugh at us if you will, but reading the news out of other Western countries in the past 5-10 years, I would say Italian illegality is no worse than in the other major countries of the West. Shall we discuss the conduct of banks? Pharmaceutical companies? Real estate developers and the construction industry?
All sectors where our cynicism and stricter rules, whether 100% enforced or not, have avoided the worse problems that have hit much of Europe.

As to investing in Italy - there are about 500 ways to get around labour legislation. Here's one:

Instead of hiring foreign (Romanian) workers outright, if you engage the services of workers for only 6 months, you are not obliged to respect the normal rules: Such workers can be paid as low as 250 euros a month, plus room and board.
Voilà! Find a local campground or monastery willing to host workers and offer a canteen (paid by the company) and accept 100% turnover every six months (not necessarily all at the same time) and you can get away not paying any payroll taxes or benefits at all.
How many firms are using this system today!

As for the low employment rate - this is largely cultural. Women in the South (but not in the North) often do not participate much in the workforce.
"Minors" under the age of 25 are not allowed to vote for the upper chamber of the parliament (the Senate), so of course the employment rate is very low and the unemployment rate very high for the 16-25 year-old category. Most Italians believe that only poor, semi-destitute "children" should be working at those ages, instead of studying at school. (University still costs only 1000-1500 annual tuition). The story of "35% youth unemployment" is largely considered a non-problem here. You simply live at home until 25. Unemployment among those aged 25-55 is quite low in our country, especially in the North (full employment, really).
What we lack are McJobs for the young. (Literally - our first McDonald's opened in 1985 and there are currently only 400 in Italy; 1972 first opening in France with 1200 restaurants today in the Hexagon).

Are you really telling me (as heard by an Italian ear) that the solution to Italy's problems is to allow a thouand more McDonald's or Burger King's to open? And then call those "jobs"? We enjoy some of the best health in the world with a quite low amount of money spent on the hospital system. No, we refuse to change our diet - already too much is being given up in the name of globalisation.

"Labour legislation reform" (which has already happened in past years anyway) is mostly a red herring. This is not the problem in our country. Instead, we need to:

Your point 4 is valid and I think the difference in gold reserves is a key point of difference. However, I've been trying to track where countries gold reserevs are actually held. I can't find much information about where Italy's reserves are. I hope for Italy that it's not tungsten-cored bars in the Fed.

@ Milovan:
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Tell me, how can I take a response seriously that talks about issues completely unrelated to my initial statement?
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Take just the first three stanzas of your response:
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# 1: "Apparently, you confuse us with France. There is no 35-hour work week in Italy."
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- I didn't mention 35-hour weeks or the like.
# 2: "The rate of trade union membership is below 30% - of full-time contracts - in hard numbers, less than 6 million people."
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- I didn't mention trade union membership.
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# 3: "Unlike Germans workers, who generally leave at 5.00 or 5.30 on the dot, Italians leave only when problems are resolved and frequently stay long after official hours."
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- I didn't mention when employees show up and leave (besides, my experience with German employees is different, certainly in the service sector - but they do tend to be on time, yes LOL).
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I could go on.
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The fact is: Italy's labor participation rate is one of the lowest among OECD countries. Too few Italians work! It doesn't matter how much those Italians who have a job work - it matters that more Italians get a job. And your famously rigid labor laws keep too many people shut out.

Hi,
The euro-zone crisis. Time to celebrate? But only with cheap sekt. The International Monetary Fund is pulling the plug out and will after 2014 give no more money to Greece. The euro zone countries from the perspective of the IMF can choose: either they opt for a haircut or for long-term transfers. The estimated cost to the euro zone is substantial and with the former finance minister apparently fiddling the books an exact figure is difficult to come by.

“The euro zone countries from the perspective of the IMF can choose: either they opt for a haircut or for long-term transfers.”

If the IMF really opts out in 2014, which we can’t say yet, they will not have anything to say anymore about future financing. In this case, the euro countries may well continue to keep Greece on dripfeed, which leaves future options open and the creditor pressure high. Otherwise, you could have Greece leaving the zone after its debt has been cut.

So desperate governments lend money to moribund banks so they in turn can buy government bonds so the cycle can continue: why does this remind me of a Ponzi scheme? Meanwhile, draining liquidity in this way leads to bankruptcy and unemployment stalking what remains of the real economy.

Tao1 writes: "The fact that these countries need to keep on selling bonds to keep alive is nothing to celebrate about. These countres are just going into deeper debt, which will lead to more serious problem."

The ECB is prepared to finance any Euro member who, like Greece, agrees to follow a near-death slimming course. The patient will be kept alive with near-zero interest loans, plus debt write offs when the cure isn’t working.

Finally, the population will be forced to work for very low wages in order to become competitive, because the state will be able to pay only very low level social benefits and pensions to the non-working.

With freedom of movement within the EU, it makes a lot of sense for depressed peoples to migrate to where the money is. The ones to migrate tend to be the most qualified and most competitive, so I wonder what will become of countries like Greece and Portugal. I guess they will become depopulated farming and tourist communities. In this way, the Eurozone policies will raise the productivity of the less productive countries, which must be a major objective.

You write that this is nothing to celebrate about, but it is the way to keep the boat afloat with the least loss of life.